Tuesday, April 30, 2019

Decision-making problems

Decision-making problems
When I consult with executives, I sometimes start with this very simple exercise. I ask group members to come to our first meeting with a brief description of their best and worst decisions of the previous year.

I have yet to come across someone who doesn’t identify their best and worst results rather than their best and worst decisions. This drawing of an overly tight relationship between results and decision quality affects our decisions every day, potentially with far-reaching, catastrophic consequences. Poker players even have a word for this: “resulting.”

While good decisions can have a bad outcome, bad decisions have a far higher probability of a bad outcome than good decisions. You can compare decision-making when you don’t have all the facts to making a bet.

According to professional poker player Annie Duke, “Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is what thinking in bets is all about.”

Poker is a game of incomplete information. It is a game of decision-making under conditions of uncertainty over time. In poker, valuable information remains hidden. There is also an element of luck in any outcome. You could make the best possible decision at every point based on the information you have and still lose the hand, because you don’t know what new cards will be dealt and revealed. Once the game is finished, you can try to learn from the results. But separating the quality of your decisions from the influence of luck is difficult.

In chess, outcomes correlate more tightly with decision quality. In poker, it is much easier to get lucky and win, or get unlucky and lose. If life were like chess, nearly every time you ran a red light you would get in an accident (or at least receive a ticket).

So now that we have established that we need luck and quality decision-making to get our project to succeed, let's focus on the latter.

Is it a decision or is it a problem?

One of the first decision-making problems you face—often without realizing it—is to decide whether you have a problem to solve or a decision to make.

Time can be wasted and people frustrated if you resort to setting up a problem-solving team when really a decision simply needed to be made.

Alternatively, living with a decision that was made when it wasn’t clear why something had gone wrong (that is, you had a problem to solve first before you could make a decision) can be just as costly.

Decision-making problems often arise because you aren’t clear whether you have a problem to solve or a decision to make.

Avoiding this problem can be easy. A simple approach is to determine whether there is something wrong, or something you are dissatisfied with that you know needs to change. If there is, and you know why something is wrong and there are clear approaches to take or alternatives to choose, then you have a decision to make. You can look forward and act. You make a bet.

It is only when you have a situation where it is not clear what should be done, that you then have a problem to solve. In this case, you must first work on understanding the problem and define potential alternatives or approaches to solve the problem. Then, you must make a decision based on these alternatives.

So now that we know when to make a decision and when to solve a problem, let’s have a look at some other reasons why decision-making is done badly so often.

Common decision-making mistakes

Below are a number of observations I have made in the last few years regarding decision-making at steering committees and executive management meetings.

> Key decisions (e.g., strategic, structural or architectural) are made by people who lack the subject-matter expertise to be making the decision.

> Expert advice is either ignored or simply never solicited.

> Lack of “situational awareness” results in ineffective decisions being made.

> Failure to bring closure to a critical decision results in wheel-spinning and inaction over extended periods of time.

> Team avoids the difficult decisions because some stakeholders may be unhappy with the outcome.

> Group decisions are made at the lowest common denominator rather than facilitating group decision-making towards the best possible answer.

> Key decisions are made without identifying or considering alternatives. The first option wins.

> Decision fragments are left unanswered, resulting in confusion. In other words, parts of the who, why, when, where and how components of a decision are made, but others are never finalized. See “Many decisions are no decisions (and this makes projects difficult)”.

> Failure to establish clear ownership of decisions or the process by which key decisions will be made results in indecision and confusion.

Conclusion

Identifying that a decision needs to be made, rather than a problem solved, is the first important step in avoiding decision-making problems. But once it’s been determined that a decision needs to be made, things can still go wrong. All of the above observations can be attributed to three root causes of bad decision-making:

1) We don’t involve the key people who should be involved.

2) We don’t generate enough alternatives upon which to base our choice of decision.

3) We don’t follow recognized and proven decision-making processes.

So do the opposite. Involve the right people, evaluate alternatives, and follow a proven decision-making process.

What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge, in turn, is some variation of “I’m not sure.”

So just like in poker, base your bet on the information you have, and you just may end up with a winning hand.

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Thursday, April 25, 2019

Why your projects should be short and fat (and how to get them that way)

Why your projects should be short and fat (and how to get them that way)
Project portfolio management is not necessarily complex. The goals are clear and simple.

1) Maximizing the value of your portfolio

2) Seeking the right balance of projects (risk vs. reward, run vs. change, etc.)

3) Creating a strong link to your strategy

4) Doing the right number of projects

Achieving these goals, on the other hand, is not such an easy task.

If we cut to the core, project portfolio management is only about two things:

Overview and decisions.

It is not difficult to obtain an overview of your project portfolio. At least not the simple overview, which is often sufficient. The hard part is making the tough decisions.

The vast majority of projects are, in isolation, good business ideas, but it is just not possible to pursue them all at the same time. The capacity of your organization to do projects is limited. Thus, good decision-making requires turning down good projects.

Many organizations have realized that a good approach to this is aiming for a project portfolio of short and fat projects. Short and fat projects imply that the company runs a small number of short projects in parallel, armed with sufficient resources.

The alternative is running many long and thin projects concurrently, which means that the organization’s resources are spread insufficiently between many parallel projects that are having a hard time crossing the finishing line. Portfolios consisting of long and thin projects are what we find in most organizations.

The underlying concept is visualized in the diagram below.


Many organizations have nodded approvingly and bought into the logic of this diagram, favoring short and fat projects over long and thin. However, despite this general agreement, the principle of short and fat is only very rarely implemented. It seems as if we often acknowledge the logic of the principle, but do not perceive it to be sufficiently relevant to our own situation.

Why is that? In my experience, it is because of no responsibility on portfolio level, no attention for throughput, no bottleneck handling, unclear strategy, and a false belief in equality. Below, I’ll go into further detail about each of these factors and show how it can be shifted to support the short-and-fat project mindset in your organization. 

Assign responsibility

It is necessary that someone assumes responsibility at the portfolio level. Each project owner has his primary interest in succeeding with his own project and, at most, a secondary interest in his colleagues succeeding with their projects elsewhere in the organization. Which is, by the way, quite natural.

Carrying out successful projects is a difficult task, and project sponsors, project owners, project managers and key project participants must be passionate about the project and fight for it with blood, sweat and tears. That is their mission – and they need to have a somewhat single-minded focus on the project to succeed.

Only by giving a person or a group of persons responsibility and targets at portfolio level will it be possible to make objective decisions about projects. The task is still difficult. The game of resources and prioritization between projects is perhaps one of the most heated and important games in many organizations, and those responsible for the portfolio are placed in the middle of this game.

Pay attention to portfolio throughput 

You have to consider project portfolio throughput from a cost-of-delay point of view. You might, for example, be able to complete a project with perfect resource management (all staff are perfectly busy) in 12 months for $1 million.

Alternatively, you could decide to not do another project and assign those people to this project as well, so you can complete it in only six months. You could also hire some extra people, have them sitting around occasionally at a total cost of $1.5 million, and realize both projects in 6 months.

What is that six months’ difference worth? Well, if the project is strategic in nature, it could be worth everything. It could mean being first to market with a new product or possessing a required capability for an upcoming bid that you don't even know about yet. It could mean impressing the heck out of some skeptical new client or being prepared for an external audit. There are many scenarios where the benefits of completing a project quickly outweigh the cost savings of drawing it out.

In addition to delivering the project faster, when you are done after six months instead of 12 months you can use the existing team for a different project, delivering even more benefits for your organization. So not only do you get your benefits for your original project sooner and/or longer, you will get those for your next project sooner as well because it starts earlier and is staffed with an experienced team.

Prioritizing based on the effect of projects will result in better decisions.

Improve bottleneck handling

Spreading one’s scarce resources between too many projects is damaging to the bottom line – and to the scarce resources. The resources in question can be cash or machines, but usually the limiting factor is your key people.

Usually, you can easily identify 5–10 people who are the most sought-after by your organization’s project managers, and unfortunately, they’re typically allocated to too many projects at the same time.

Following the theory of constraints, these are the people who also determine the progress in your portfolio. It could be their decision-making, or it could be the way they’re prioritized. Either way, they are your bottlenecks.

The handling of these people, and how brave you are in your decisions regarding them, is thus an important factor in project portfolio management. Besides your key people not being effective because they have to juggle many projects at the same time, their motivation will drop because of it, making it even harder to get things done.

Protecting and deliberately assigning projects to your key people is essential.

Have a clear strategy

Mike Porter states in his influential book "Competitive Strategy" that an organization creates a sustainable competitive advantage over its rivals by "deliberately choosing a different set of activities to deliver unique value." Therefore, strategy requires making explicit choices.

Lafley and Martin define strategy in their book "Playing to Win: How Strategy Really Works" as an integrated set of choices that uniquely positions the organization (which can be a company, a department, or a business unit) in its industry so as to create sustainable advantage and superior value relative to the competition.

It is natural to want to keep options open as long as possible, rather than closing off possibilities by making explicit choices. However, it is only through making and acting on choices that you can win. Yes, clear, tough choices force your hand and confine you to a path. But they also free you to focus on what matters.

When you have no clear strategy, it is impossible to select the right projects for your portfolio to execute your strategy,

Stop believing in equality

The notion of equality is poisonous to an efficient project portfolio. It does not make any sense that all projects that are good ideas – or equally good ideas – should be treated the same and be allocated the same amount of resources or be initiated at the same time.

Similarly, it does not make any sense to attach the same weight to all organizational areas or project types in a portfolio based on a principle of equality and justice. As a whole, the organization will lose on this. Trade-offs have to be made, even though it hurts.

Conclusion

Remember the numbers two (number of concurrent projects per project participant) and five (maximum number of must-win battles).

Surveys of the efficiency of project members show – both logically and mathematically – that it is best for your project portfolio and its progress if all project members are only allocated to a maximum of two projects at the same time. This outcome is supported by those who are allocated to too many concurrent projects and whose time is inefficiently spread between these – just ask them.

Another number to remember is IMD Business School’s rule of thumb for how many significant strategic initiatives – the so-called must-win battles – a management team should launch at the same time. This number is five. And those five should be held on to until they are fully implemented.

When it comes to organizational development and strategic initiatives, the scarce factor includes intangibles such as the management team’s total amount of attention and the organization’s overall ability to change. These are difficult to sum-up in figures, and, thus, it is important to have the courage to go for the short and fat approach, even though it can’t always be proven mathematically.

Challenge yourself to not allocate project workers to more than two concurrent projects, and not initiate more than five strategic and important initiatives at the same time. It is an experiment worth trying.

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Wednesday, April 17, 2019

The biggest mistake project managers make with project cost management

The biggest mistake project managers make with project cost management
The biggest mistake project managers make with project cost management is not doing monthly forecasting and controlling.

Project cost management is nothing more than doing the following three things every month:

1) Cost Estimating
2) Cost Budgeting
3) Cost Controlling

You start your project with an approved budget. When you are lucky, you created the budget yourself based on a combination of bottom-up and top-down estimations and it got approved by the project sponsor. When you are not so lucky, you inherited a budget created by somebody else, or you just got less money than you budgeted.

The first step is taking this budget and dividing it into meaningful spending categories. The first split I always make is between internal costs and external costs. External costs are cash out, and they’re handled differently by your company than internal costs. The rest of my splits depend on project type and size, for example: project management, technology management, change management, training and travel costs. In theory this would give me a total of 10 (2 x 5) spending categories, but since travel costs are always external costs it would be effectively nine categories.

It’s important to verify that you can map your actual booked costs to these categories. This means, for internal costs, that people working on a project have different booking codes for the different categories, or you can map all the hours of one person to one category. For external costs it means that you have different booking codes for each category, or you map them manually.

Now that you have your categories, you just create a simple spreadsheet and create a simple table with a row for each category and one column for each month of the planned duration of your project. Before your project has started, you’ll fill each column with the forecasted costs per month per category. When your project has already been running for a while, you will place the actual booked costs per category for these months in the columns and the forecast values in the rest.

When you have done this, you can add the following six columns to the end of the table.

> Total Budget: Here you manually input the budget you have per category.

> Total Actuals: This is the sum of all booked costs per category.

> Total Forecast: This is the sum of all forecasted costs per category.

> Projected Costs: This is the sum of Total Actuals + Total Forecast per category.

> Budget – Actuals: This gives you the amount that you have left of your budget per category.

> Budget – Projected Costs: This gives you a good indication if your budget is enough to realize the project.

Now add one row to your table that just sums up all the rows above, so you have the information per category as well as on a project level.

This spreadsheet is all you need as a tool to start effective project cost management.

No matter your starting point and categories, from now on you have to do the following four things each and every month until the project is officially closed.

1) Get all the costs that are booked on your project from your finance team. Put these numbers in the month they are booked. Remember that these are booked later as they have occurred.

2) Add so-called accruals to your forecast. When Supplier A has worked 36 man-days on your project in April, then you need to add these as accruals to the forecast for May. When they are not booked, then you will add the accruals to the forecast from June. You do this until the final invoice is booked and the number shows up in your actual booked costs. This is an essential part of cost controlling. When you do not do this, you will always have around two months of external costs not in your overview and will be very surprised at the end of your project.

3) Update your forecast based on what you have learned this month about the project and update these numbers in the spreadsheet.

4) Review the new numbers in the last six columns and take the necessary actions based on them.

When it comes down to it, project cost management is nothing more than discipline by the project manager to break down the spending categories, create an effective spreadsheet, and do the cost estimating, cost budgeting, and cost controlling steps described above every single month, and the ability of the organization to produce the input needed. The better the quality of the input, the better the quality of your cost controlling.

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Tuesday, April 09, 2019

Case Study: How a screwed-up SAP implementation almost brought down National Grid

Case Study: How a screwed-up SAP implementation almost brought down National Grid
National Grid USA (NGUSA), which is part of the UK-based National Grid Ltd., supplies electricity and gas in Massachusetts, New York, and Rhode Island. It is one of the largest investor-owned power distribution companies in the U.S. In October 2012 the company faced a very difficult decision.

The SAP project that was three years in running and marred by delays and budget overruns was scheduled to go live on November 5. Failure to go live meant a delay of another five months, likely another $50 million in additional spending, and a trip back to the Utilities Rate Commission to request approval to pay for the overruns.

At the same time, Hurricane Sandy was pounding up the East Coast. By mid-October, forecasts for damage in NGUSA’s service area were extensive. For a utility company, power restoration takes precedence over everything else after a hurricane.

NGUSA had to know they had a bumpy ride coming when they made the decision to go live. What they clearly didn’t understand was just how bumpy the ride would be.

In the weeks that followed the go-live, while the NGUSA crews were working tirelessly to restore power, the SAP project team was just beginning to understand the full extent of the damage being caused because of the screwed-up SAP implementation. The problems spanned many areas, including:

Payroll: The new SAP system miscalculated time, pay rates, and reimbursements, so that employees were paid too little, too much, or nothing at all. Over-payments of more than $6 million were made to employees and not recovered. There was $12 million paid in settlements to employees related to short pays and deductions. Delays in the generation of W2s and other tax reporting occurred.

Vendor payments: Just two months after go-live, NGUSA had 15,000 vendor invoices that they were unable to process for payment, inventory record-keeping was in shambles, and vendors were being issued payments with the understanding that reconciliation would take place later.

Financial reporting: Prior to go-live it took NGUSA four days to close its financial books. Following go-live the close took 43 days. So bad was the financial reporting, NGUSA lost its ability to access short-term borrowing financial vehicles based upon its inability to provide satisfactory financial reports.

To deal with the many accounting, payroll, and supply-chain issues NGUSA was grappling with, they launched a stabilization program. To support the program, 300 contractors were initially brought in to assist with payroll issues. A total of 450 contractors were eventually brought in to address payroll problems. Another 200 contractors were brought in to assist with supply-chain issues. And, another 200 contractors were brought in to support the financial close issues.

The first priority of the stabilization effort was to ensure that NGUSA could comply with its obligations, including:

> Paying employees accurately and on time
> Paying vendors accurately and timely
> Providing legal, regulatory, and other reports to external stakeholders that are accurate and timely

The team’s second stabilization priority was to enable NGUSA to be efficient and self-sufficient in operating the SAP system and realize the benefits the system can provide without significant reliance on external support.

The continuing effort to stabilize SAP was anticipated to be about $30 million per month in September 2013.

The problems were so profound that the cleanup took more than two years to complete with a calculated cost of $585 million, more than 150 percent of the cost of implementation.

The journey

The journey to the decision to go live on November 5 was not unlike that experienced by other companies that have followed a similar path. In 2007, NGUSA had finalized a major acquisition, making it one of the largest privately held power distribution companies in the U.S.

This acquisition left the company with two sets of financial and operating systems. Capturing the synergies of combining these systems and adopting new sets of business processes were key components of the justification for the project. The project was also viewed as a method to allow NGUSA to address significant audit deficiencies in its financial business processes.

The project to upgrade NGUSA's legacy systems – many of which were running on Oracle – began in 2008. In mid-2009, NGUSA hired Deloitte as its systems integrator and set a project budget of $290 million that was submitted and approved by the Utilities Rate Commission.

Deloitte was initially employed as the lead implementation partner, project manager and systems integrator, but in June 2010 it was replaced by Ernst and Young (EY) in the first two roles, and by Wipro as systems integrator. The main reason for this switch was to lower implementation costs.

The program operated with a target go-live date of December 2011. This date was later moved to July 2012, followed by October 2012, and then a November 2012 target date. The final sanctioned estimate of the project was set at $383 million, nearly 30 percent beyond the original target budget that was approved by the board.

NGUSA continued to engage Wipro after the go live in making the necessary fixes to the installed SAP system tolling their agreement (extending the statute of limitations for filing suit). In many instances, functional and technical specifications had to be completely rewritten and entire SAP modules had to be rebuilt or abandoned.

On November 30, 2017, NGUSA filed a lawsuit against Wipro in the U.S. District Court Eastern District of New York. The lawsuit notes that NGUSA was unable to file suit against EY due to the language of their contract. The suit alleges that Wipro fraudulently induced NGUSA into signing the original agreements. NGUSA claims that Wipro misrepresented its SAP implementation capabilities, talent, and knowledge of the U.S. utilities business operations and common practices.

As Wipro knew or should have known, it had neither the ability nor intent to assign appropriately experienced and skilled consultants to the Project because... it in fact had virtually no experience implementing an SAP platform for a U.S.-regulated utility. – National Grid USA

Besides this, the suit alleges that Wipro breached its contract with NGUSA by:

> Failing to prepare design documents and specifications to industry standards.
Failing to prepare programming and configuration to industry standards.
Failing to adequately test, detect, and inform of problems.
Failing to advise that the system was not ready to go live.
Breaching express and implied warranties by not providing consultants that were consistent with a top 25 percent SAP implementation firm.
Negligently misrepresenting itself for the same reasons identified in the first cause for action.
Violating New York’s General Business Law for deceptive practices.

NGUSA was seeking damages in the form of relief of all contractual obligations, restitution of all amounts paid to Wipro, damages associated with a poor go-live, punitive damages, and attorney's fees and costs associated with the lawsuit.

On June 1, 2018, Wipro filed a motion to dismiss on three of the five causes for claims that it fraudulently misrepresented its capabilities and of negligent misrepresentation. In its response to the NGUSA RFP, Wipro claims that it identified that it had a well-established SAP practice, installed SAP globally for utilities, and had a long-running relationship with U.S. utilities. There was no explicit statement indicating that Wipro had not completed implementations of SAP for U.S.-based utilities nor were specific references provided in this regard.

Wipro also defended much of the language in the RFP response as common puffery, implying that NGUSA had a basic responsibility to check references.

In August 2018 Wipro paid NGUSA $75 million to settle the lawsuit. Wipro states that the settlement has been effected for an amount of US$75 million and is without admission of liability or wrongdoing of any kind by the parties.

NGUSA has been a valued customer of Wipro for over a decade and both organizations have had a mutually beneficial relationship over the years. We believe that this settlement will be commercially beneficial for us and will help us remain focused on growth. – Wipro

So what went wrong?

In my experience with such large projects, it is never one party that is responsible for such a disaster by itself. Where were NGUSA’s project owners? Client project teams have responsibility for signing off on requirements, designs, project strategies, and test results. Did NGUSA provide Wipro with the appropriate access to expert personnel to properly identify requirements? Did Wipro believe that they had accurately captured all requirements based on NGUSA’s sign-off?

In July of 2014, the NorthStar Consulting Group presented their findings of a comprehensive management and operations audit of the U.S. NGUSA companies sponsored by the New York Public Service Commission. The 265-page report (see references) covered a broad range of the company’s operations and governance. Throughout the report, the impact of the failed go-live was noted as well as the governance processes that led the company to determine that going live on November 5 was the best decision.

Below are some interesting observations noted in the report.

Design: The system only produced limited reports for management. Most managers have received only highly summarized reports of the costs they are responsible for since the go-live date. November 2013, eight months into the fiscal year, was the first time managers received a detailed cost report that also contained their corresponding budget figures. Some of the lack of reporting was a result of the system design, and many reports that had been provided by the predecessor systems were not provided in the design of the SAP.

Training: Another reason for the lack of information to managers is that the philosophy of information access at the SAP system is that managers are expected to request tailored information and reports from the system with the support of analysts from Decision Support. The lack of staff with the high level of skills necessary to query the data and produce reports for managers has greatly limited the success of this strategy.

Testing: Testing was conducted during each phase of development of the SAP system. One of the lessons learned is that the testing was designed to determine where the system did work rather than identifying the areas where it did not work. Another lesson is that errors were found in the final test stages. Fixes were installed but there was no time for retesting.

Complexity: Building an SAP system requires the development of a series of components commonly referred to as RICEFWs (Reports, Interfaces, Conversions, Enhancements, Forms, Workflows). NGUSA’s design had a total of 636 RICEFWs. As Exhibit IV-5 illustrates, this was a large number for even a large power utility. The NGUSA system design was twice as complex as NGUSA UK’s R1 implementation of SAP and three times as complex as NGUSA UK’s R2 implementation.

Preparation: Pre-implementation, NGUSA did not benefit from the rest of the industry’s SAP lessons learned. NGUSA did not use vendors with a strong track record of U.S. utility industry experience in SAP platform implementation and to date has had almost no interface with other U.S. utilities that have implemented SAP.

Transparency: While problems with system and company readiness were identified by particular groups within NGUSA prior to implementation, that information was subsumed by a push to go live. The overly optimistic risk scoring and executive expectations for the project in its early stages continues with stabilization work.

Validation: During the initial SAP development process, there was minimal interaction with operations personnel regarding desired information or reports. NGUSA implemented a complex field time reporting system without investigating its feasibility given how work is actually performed.

As part of the findings, NorthPoint documented NGUSA’s management observations as to the root cause of the failed implementation. These included:

> Overly ambitious design
> Significantly underestimated scale of transformation needed
> Limited availability of internal personnel due to ambitious business agenda
> Multi-partner model did not deliver business benefits
> Lack of ownership of certain business processes
> Testing less effective than expected due to limited range of scenarios tested and limited data availability
> Inadequate quality of data from legacy systems
> Too much focus on timeline and not enough focus on quality
> Training methods proved ineffective

Closing thoughts

There are many checkpoints a project the magnitude of NGUSA’s SAP implementation must pass to move forward, each requiring NGUSA to sign off on the quality of the delivered product. There were many opportunities for NGUSA to identify poor-quality talent on the part of Wipro and demand replacements.

The final decision to go live always rests with the client and unless Wipro was looking to deceive NGUSA regarding the results of its testing, NGUSA is partly to blame.

And where was Ernst and Young? EY was providing project management oversight. They clearly have an understanding of what it takes to put in a major SAP implementation. How did they not see or anticipate the major problems that occurred, and how did they fail to warn the NGUSA management team? Or did they?

Where was SAP? In their suit, NGUSA claims that Wipro developed an overly complex system that relied on the development of new capabilities as opposed to using the software as designed. NGUSA identified SAP as providing some level of oversight. Why didn’t SAP point out these significant deviations from standard? Or did they?

Where were the auditors? Projects of this size and impact are often reviewed by both internal and external auditing. Were project reviews performed? Were the appropriate mitigations put in place?

While there are many questions left to be answered about the botched SAP implementation that almost brought down National Grid, one thing is sure. When you start a large project like the implementation of a SAP system, you have to take responsibility and make sure that you as an organization are ready and committed to it.

Other project failure case studies

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References


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